Ask HN: Clients are gone, lots of debt, what would you do?

Like others have said, I would contact the server company and do what you can to cease the contract. I personally think the advice given of 'turning up in person and begging for mercy' is a little odd and I wouldn't do that. I'd call up, ask to speak to someone about renegotiating the contract (ie someone who can make the decision, not the sales rep) and explain the business has gone under and that you would rather conclude the relationship now rather than be in a position not to be able to pay and have to have them join your list of creditors. That should pretty much do the trick.

Now, the one problem with that is that it means the product you've built will no longer be running, which means you can't sell it. However, I think it's a funny time right now for lead generation anyway and IMHO better to be out of the game for a little bit to see how things settle.

In the meantime, I would weigh up your best opportunities between consulting and getting a job - what will make you the most money (to pay off the debt). I'd also factor in what will keep you involved in the industry - ie might be better to go contract or a slightly lower paying job in lead generation/online advertising than to get a higher paying job selling insurance (just an example - point is it's something that doesn't move your career forward).

I would look to pay off at least the minimum payments, just to stop the debt from increasing - but really you should try to pay what you can off per month. The budgeting ideas are good.

Finally, I would tinker on your project in your spare time - as long as you feel you are moving forward with it and creating value. If it makes you feel miserable, which it might, I would leave it dormant.

We really don't know where we are with the economy right now and so playing a safe game for the next 6 months is vital IMHO until we know what things really look like -- then we'll be able to see the opportunities and begin to capitalize on them.

On a personal note, I just want to say I feel for you. I've never been in debt, but I've also never really embarked on a risk taking entrepreneurial venture like you did. I moved to Silicon Valley (from another country) to do it, and 2.5 years later I'm still scared to try it. Scared of the failure, especially economic.

My point is you have tried it, you have learned a lot and you have the life experience which many don't. I hope that simply empowers you to get back on your feet and try the next one. I wish I wasn't as paralyzed as I am as my window of opportunity, age wise, is closing.

Best of luck to you.

Boy...I was ready to vote up this comment, but then I hit the part about not worrying about the $30k in credit-card debt. Instant down arrow. Absolutely TERRIBLE advice.

Whatever you do, you really must pay down the debt. Minimum payments aren't going to cut it -- this is revolving debt that you're talking about, and if you don't make more than the minimum payments, it's only going to get worse. People routinely go bankrupt by ignoring their credit cards.

Moreover, so long as you're paying tens of percent interest on your debt (as with most credit-card interest rates), every other investment that you make has to return more than your interest payments for the investment to be worthwhile. If you view a business as an investment -- just like a stock or bond -- then it makes no sense to start one while indebted unless you're sure that the return will exceed he cost of the debt. Otherwise, you're just taking careless risks with your finances, in the name of a more adventurous lifestyle.

Living frugally, you can easily pay down $30k in a few years at any decent job. Negotiate with your lenders, get the interest rate as low as you can, liquidate the corporate assets, and get rid of the debt. Starting a company is hard enough -- don't saddle yourself with the additional burden of serious personal debt before you begin.

He needs that 6K to live on until he can find more income. If you pay 6K on the credit card you still owe the minimum payment next month only now you're broke. At the margin he will have to declare bankruptcy. This is a cash flow budgeting problem: many bootstrapping startups face these kinds of issues.

As for getting a personal loan he's broke and has no assets: I would be cautious about falsifying a credit application.

He needs to focus immediately on income: focusing all of his efforts to earn many times more than $600 (6 months of 20% interest on 6K) over the next six months will be more useful than more debt juggling.

I did that. I got a contracting job making $50/hour, worked for a year, grossed $100K ($50 an hour times 40 hours a week times 50 weeks in a year), paid off my $40K debt, paid $40K in taxes, and lived off of the remaining $20K.

So I want to be clear what my advice is... if you still think it's terrible advice, that's fine, as long as I'm not being confusing as to what I'm trying to say.

If I found myself in patryn20's shoes, or in my own shoes again, I personally would pay off the credit card debt before doing anything to upgrade my lifestyle. I'd stay bumming with my parents and friends, or, if that was starting to impact my productivity, get a really cheap apartment. No luxuries until the debt was paid off.

However, I wouldn't now make paying off the debt the very first priority. If I found myself in the same shoes again, I would not now stay in a contracting job just to get rid of the debt.

Absolutely I would want to see the debt going down. However I understand now the reason that is important is because it means that I'm now paying attention to the financial signals in my life.

The debt itself is only 30K, and if I paid even 30% interest on that, that's only 9K a year. That's not going to kill me.

What's important is the mindset, the understanding, that I'm now going to steer my business and my personal finances in the correct direction, and that I'm going to listen to the financial signals in my life instead of papering over them with debt. Get that right, and it won't matter if I end up paying off the debt in three months or two years.

For decision making purposes (such as, suppose patryn20 wants to start another business, should he do it or not?), I claim what's important is the time derivative of his net worth. Does the proposed business put him further into debt, making the derivative of his net worth negative? Then I would say, no, don't do it. If it is going to make money, leading to raising his net worth, and he wants to start a business, he's fired up about starting a business, he's excited by starting a business, go for it. I wouldn't base the decision on the net worth itself, I wouldn't say "don't go into business while your net worth is negative".

I wouldn't necessarily give the same advice to anyone. If someone had 30K of consumer debt from overspending, I'd be concerned at their successful ability to manage their business finances when they can't manage their personal finances. For such a person I probably would recommend getting a job and getting their personal finances under control (paying off the debt), before getting into a business. However patryn20 has a track record of a successful business, just in my opinion over leveraged, and right at the moment he reeling from a pretty hard blow. So my advice for him is different than it would be for a hypothetical person who was in 30K of credit card debt for a different reason.

I think it's great to have that kind of mindset. As I said, I thought the rest of your advice was great -- I just happen to vehemently disagree with the notion that you can let revolving debt ride while you pursue high-risk investments (i.e. starting a business).

Even if you're "only" paying $9k a year in credit-card interest, that's still $9k that could be invested directly into your future. And if you truly believe in your business, then why wouldn't you want to invest everything into it? Is it worth starting a business two years earlier, only to have $9k less per year to funnel into your dream?

More practically, you need every last dollar that you've saved to start a business. Few entrepreneurs can afford that extra $9k a year, and I doubt that you'll meet many successful business owners who will tell you that they couldn't have used additional capital. It really doesn't make much sense to invest in a business when you're saddled with consumer debt.